Now, it seems every week or so, an employer is getting sued in a class action lawsuit, alleging fiduciary breach, filed by its employees (or ex-employees) over mismanagement of their company 401(k) retirement plan. Just in 2025 alone, these are the stories we’ve covered on defined contribution lawsuits, which fall into basically these main categories:
- Excessive fees: Trader Joe’s
- Misuse of forfeited funds: HP Inc., Charter Communications, JP Morgan, Amazon
- Underperforming funds: Southwest Airlines, Northern Trust
- Prioritization of ESG goals: American Airlines
While there has been a surge in 401(k) lawsuits against companies for Employee Retirement Income Security Act (ERISA) violations, the majority of retirement plans could be in danger of getting sued, since 84% have at least one likely ERISA “red flag” from a regulatory and/or fiduciary violation, according to Abernathy Daley 401k Consultants.
Abernathy-Daley analyzed the latest Form 5500 filings for 764,729 plans, identifying and tagging each plan with any red flags from their most recent filing. Abernathy-Daley defines red flag violations as either “infractions, fineable offenses, fiduciary failure, or plan malpractice.” These infractions include failing to provide automatic enrollment, no corrective distribution of excessive contributions and failure to transmit payments on time.
While larger firms seem to be in the crosshairs of fiduciary breaches, small and mid-sized employers need to be more aware and informed about these allegations so they can remain focused on staying compliant. We turned to fiduciary experts to find out how plan sponsors can protect their 401(k) plan from these class action lawsuits.
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Avoid exposure to fiduciary failures
“Our research has brought further attention to the industry’s lack of fiduciary responsibility and just how widespread this problem is, which could potentially bring about additional scrutiny that holds violators accountable,” said Matt Daley, President, Abernathy Daley 401k Consultants, which conducted research on ERISA fiduciary compliance, after analyzing over 700,000 401(k) plans.
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“However, it is impossible to say with certainty that high profile cases will lead to an escalation of lawsuits in 2025 versus any other year. It is our sincere hope that the entire industry, including plan sponsors, advisors, and employers, begin to take more responsibility for their retirement plan offerings and avoid exposure to these regulatory and fiduciary failures in the first place.”
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Strengthen fiduciary best practices
“There was an increased influx of ERISA-related lawsuits in 2024, including some big-name companies such as Home Depot and Nordstrom, and this trend is likely to continue in 2025,” said Richard Clarke, Chief Insurance Officer at Colonial Surety Company. “We don’t know yet how the new administration will approach retirement regulations, but early signs suggest that potential legislative changes could further fuel ERISA litigation.
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“Plan sponsors and TPAs should be prepared by strengthening fiduciary best practices and implementing protective measures such as fiduciary liability insurance. This will not only help them to navigate potential policy shifts but also to mitigate risks and fulfill their obligations with more confidence and financial protection.”
Conduct benchmarking audits
Benchmarking audits “compare the fees, administrative services, and investment offerings of a company’s plan to industry standards,” said Steven Abernathy, Principal and Chairman of Abernathy Daley 401K Consultants. “The goal is to ensure that the plan is competitively priced, adheres to best practices, and aligns with fiduciary responsibilities.
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“By conducting these audits, employers can identify areas where they might be overpaying for plan administration or investment options and where they could improve the plan to better serve their employees.”
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Watch for signs from the new administration
“Of course, there seems to be some shifting priorities in the new administration, which are prudent to consider,” said Abernathy. “Each administration has their own set of priorities, and this is also difficult to project. While there is an indication that American workers will be put before lobbyist interests, a possible cut in government and regulatory resources could also lead to less scrutiny.
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“This would allow industry interests to supersede the ethical and professional standard we believe is paramount to protecting companies and employees from potentially harmful practices in the retirement plan industry.”
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